Comments

ulogan on 2018-03-29:

They’re totally different things. It’s like asking what’s the difference between a bulldozer and a windmill. An IRA is a special kind of account you can lavender bar soap with a bank or brokerage, where you don’t pay taxes (way oversimplified) on the interest or profit, but you’re not allowed to take any money out (exceptions apply) until you retire. Like, you have an IRA with Vanguard, and every year for twenty years you deposit $5,000. You use that money to buy and sell stocks, with all the proceeds from sales staying in the account. At the end of the twenty years, you’ve deposited $1M, but the account is worth $2M. Then, depending on what kind of IRA you had, you can either take money out without paying taxes at all, or having delayed paying taxes until your retirement (this is a better deal than it sounds like, okay?). tl;dr: an IRA is a kind of tax shelter that you’re allowed to use, as long as you commit to using it to save for retirement. An annuity is a contract with an insurance company. You’re about to retire, and you want to make sure you have an income for the rest of your life. You have $3M saved up (or, you could sell your various investments for $3M), and you could live anywhere from five to thirty more years. How much money can you take out of your savings and spend, each year, and still be sure you won’t run out until you die? What if the stock market tanks? What if you live to be 115? The insurance company is willing to handle all that for you. In exchange for the $3M upfront, they’ll promise to pay you $15k a month for the rest of your life. They’ll take away all the risk, in exchange for you getting less money than you would (probably, but you never know) have been able to earn, managing your investments yourself.